IAS 23 · Case studies (Step 3 of 5)
Case study
Forges Ostrevent SA (fictitious entity) builds a metal-processing plant, a qualifying asset, financed by a specific loan of 2,000,000 EUR at 6% per year, drawn on 1 January 20X5. Works start on 1 March 20X5. Part of the funds, not yet spent, is invested temporarily. Year end 31 December 20X5.
Your assignment
Check that the conditions for the start of inclusion are met at the date adopted; compute the actual borrowing costs of the inclusion period, the investment income and the eligible amount; record the inclusion, the investment income and the expense of the period before the start (case data); present the effect; conclude.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Intermediate level: help remains available, on demand.
Method
File checklist
4 documents: open each one to read it.
Document 1Contract
Loan contract and statement: principal of 2,000,000 EUR drawn on 1 January 20X5; annual effective rate of 6% (case datum); borrowing costs of the year: 120,000 EUR; rate for the 10-month inclusion period (1 March to 31 December): 5%, that is 6% × 10 / 12; interest of January and February, before the start of the works: 20,000 EUR.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Principal of the specific loan | €2,000,000.00 | |
| Rate for the inclusion period (6% × 10 / 12) | 5% | |
| Borrowing costs of the whole year | €120,000.00 | |
| Interest of January and February, before the start | €20,000.00 | |
| Borrowed funds not spent and temporarily invested | €800,000.00 | |
| Investment rate for the period (3% × 4 / 12) | 1% | |
| Safety audit 20X6 | €9,000.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Loan contract and statement
Treasury statement
Site minutes
Safety audit
7 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
Are the conditions for the start of inclusion met on 1 March 20X5? Justify.
Task 2Calculation
Compute the actual borrowing costs of the inclusion period.
Part 1 · Calculation
Compute the actual borrowing costs of the inclusion period.
Task 3Calculation
Compute the investment income on the temporary investment.
Part 1 · Calculation
Compute the investment income on the temporary investment.
Task 4Calculation
Compute the eligible costs.
Part 1 · Calculation
Compute the eligible costs.
Task 5Journal entries
Record the inclusion, the investment income and the expense of January and February.
Part 1 · Journal entry · Journal entries
Entry 1 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 6Effects on the financial statements
What is their effect on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 7Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 11).
Document this file
These working papers use the data and results of this case.
Normative references